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November 15, 2012

Economy Seen as Debacle for Ruling Japanese Party

Prime minister to dissolve parliament, elections set for December

Japan's economic troubles are forcing new elections. (Photo: AP)

With Japan’s economy still suffering from woes ranging from deflation to lack of growth, Prime Minister Yoshihiko Noda has announced that he will dissolve the Diet, Japan’s parliament, on Friday. The move will necessitate an election that has been set for Dec. 16.

Bloomberg reported Thursday that the Democratic Party of Japan, which has been in power for only three years after unseating the Liberal Democratic Party–a group that has ruled for about 50 years–looks set to suffer a crushing defeat in the election. Originally due in August, the elections were moved ahead after LDP leader Shinzo Abe agreed to end a standoff over budget financing and to lend his support to a plan to cut the number of Diet seats.

When Noda’s party came to power, it had promised to attack everything from deflation to social spending to a stagnating economy. However, it has failed to deliver on those promises, with three prime ministers in three years, and has seen its approval rating plunge to below 20%.

“The likely result is a bloodbath for the DPJ,” said Jeff Kingston in the report. Kingston, professor of Japanese politics at Temple University’s Tokyo campus, continued, “The economy is definitely the major issue facing Japan and because a lot of those economic and fiscal problems are intractable, that creates a temptation for leaders to dabble in other issues that aren’t so difficult.”

The upcoming Japanese election will mean that three of Asia’s four largest economies–Japan, China and South Korea–will have new leaders in 2013. South Korea will elect its new president on Dec. 19, and the winner will take office in February. And China officially replaced Hu Jintao as head of the Chinese Communist Party on Thursday, with his successor Xi Jinping set to become president in March.

A new government in Japan will affect not only the country’s stand on world affairs–Abe, who could succeed Noda, takes a harder line on Japan’s relations with China–but also the policies of its central bank, with the Bank of Japan’s leadership set to change in March and April.

If the LDP is victorious, Abe “will then aim for higher inflation and increase pressure for the BOJ to ease further,” said Masafumi Yamamoto in the report. Yamamoto, chief foreign exchange strategist in Tokyo at Barclays, added, “That speculation has triggered a sell-off in the yen.”